Bankruptcy Pain Accelerates in Shale Oil

My investments include both banks and energy companies as part of my overall portfolio. So, as a value investor, I need to perform due diligence on the ongoing crisis in the oil patch, re-assessing the investment risks as information becomes available.

In the present environment, the effect of low oil prices remains a source of strategic risk for investors. Among the risks are the resulting effects that industry-wide bankruptcies in E&P may have on banks.

The number of bankruptcies in the oil patch has grown dramatically each and every month this year. Increasing from 3 Chapter 11 filings in January to 11 in April.

Last month saw the largest number of filings involving larger and larger amounts of corporate debt, much of which was unsecured debt. In April alone, the total debt of all the companies filing for bankruptcy was almost $15B. By comparison, the total debt of the 42 companies filing in 2015 was $17.2B

Folks, this is far from over. Pressure will mount on the financial positions of the high-cost shale producers from external sources as OPEC countries vow to maintain or increase their market share. Internal regulatory pressure will also be brought to bear on these shale producers, many of whom are already, virtually, insolvent.

US Federal bank regulator is putting the squeeze on banks’ oil and gas debt portfolios after seeing a rise in undeveloped reserves against which banks have granted loans…regulators have already marked 15 percent of oil and gas loans worth $34 billion as substandard…

Deloitte

Here is how the year of bankruptcies is shaking out so far in the oil patch.

What do You Think?

MyAssetClass pays you to contribute articles on your best and current experiences with value investing. The MyAssetClass.com forum focuses on the broad principles of value investing and publishes compelling and engaging content which will affect your decisions.

While investment strategies are personal, and this investor discussion forum doesn’t give investment or financial advice, there are some common tenets of value investing that can be better understood by structured and focused discussions with other like-minded investors.